*Note: a SWOT analysis is an evaluation of the fundamental, operational, technical, social, economic, and even to some degree administrative elements of a project. This is not a model to be used for trading purposes. (NFA, DYOR)
Composed of four elements, Strengths, Weaknesses, Opportunities, and Threats, a SWOT analysis framework provides excellent insight for establishing a high-level understanding of the state of a project’s well-being through the lens of a birds-eye view.
It can help formulate decisions around which areas require more attention, set performance goals, and organize a foundational understanding of where a project is headed.
Rarely (if ever) used in crypto, it is time to apply this timeless method of evaluation to the digital asset space.
Today, Filecoin (FIL), the industry’s leading solution for decentralized storage and hypermedia, will get a SWOT.
💪 Strengths (Internal) (Helpful)
1. Underpinned by IPFS
The Interplanetary File System is a distributed file storage and sharing protocol that existed many years before the Filecoin token was even launched. Already equipped with a sizeable user base and node network, Filecoin is building on top of a proven model that already has built for itself a powerful reputation. Even without the FIL token’s presence, some of the industries leading projects have turned to IPFS as a measure of increasing systematic resilience and decentralization; among these are the likes of Brave Browser, DeCrypt Media, Augur, Kyber, Infura, Metamask, MyEtherWallet, Pinata, StakeFish, Uniswap, and this is just the crypto natives. World-famous projects like Cloudflare and even Wikipedia use IPFS to some degree.
2. Extensive Node Network
The technological infrastructure of the Filecoin network is deserving of credit. There are over 4,000 nodes allocating their hardware devices to the network and providing storage to over 1,700 clients. Considering the non-trivial technical knowledge required to operate a full node and the difficult state of the market, this degree of participation is impressive at the very least.
3. Storing extremely Valuable Data
The types of data making their way on-chain is becoming increasingly valuable. Leading institutions from around the world are uploading their research, digital records of human history, individual social media references, and even genomic sequences! Of course, beyond information that serves a purpose for humanity, where else but at a solution such as Filecoin would projects from the degen NFT collections and DAOs go to? Filecoin provides NFT.storage and Web3.storage, which act as interfaces that abstract away complexity and allow for on-chain adjudications (such as swapping out some meta-data) to take place.
4. Notable Clientele
Filecoin has quite a reputation; some of the world’s most notable entities from the real world (outside of blockchain/crypto), including New York City, UC Berkley, USC Shoah Foundation, and others of a similar caliber have turned to Filecoin as their storage solution. As it pertains to the native Web3 companies, giga-platforms such as OpenSea and innovative projects like Ocean Protocol, Brhave tapped into Filecoin’s robust storage solution. This element has a flywheel effect, whereby the more notable users there are, the more likely it becomes for more new users to trust using the platform.
5. Increased rate of data coming on-chain
When gauging the value that the Filecoin Network provides, one of the key indicators is the amount of data that is actually being stored on the network. Currently, there is approximately 4.5–5 PiBs (pebibytes) of new data that is coming into Filecoin every day. If we measure this in proportion to the rate that was effective ~365 days ago, it is an increase of right around 5x.
6. Active Deals are up >11x Year on Year.
Comparing the current level of active deals floating around >950 against the level of deals floating this time last year (2022) was just 87, that is an increase of 11x. An increase in the amount of deals taking place is a direct signal of demand for the service being provided and confirmation of a product market fit. While this definitely classifies as a strength, this permutation is not natural; it is skewed by an emission program that offsets node operator costs to join the network and provide their services. In aggregate more than 41,000,000 data storage deals have been facilitated through the Filecoin Network.
7. State of Network Upgrades and Developments
Filecoins notoriety has begun to spill into developments of adjacent supplementary technologies, including the FVM (Filecoin Virtual Machine) and the CDN (Content Delivery Network) called Project Saturn. With the introduction of the FVM, Filecoin became capable of supporting smart contracts, which will introduce a new vector of value creation {such as providing credit for service in an unsecured manner or uncollateralized loans for operations} and increasing the FIL token’s velocity. Project Saturn comes with a wide range of technical upgrades that increase the quality of the services by increasing the retrieval speeds. Another critical upgrade taking place at the infrastructure level is the DSA optimization; an open-source software upgrade that will ease the onboarding processes and lowers costs by another staggering 40%.
😞 Weaknesses (Internal) (Harmful)
1. FIL+ Program Fueling Agressive Emissions
The current level of FIL token rewards are enormously outweighing the revenue generated through real demand; which might be contributing to an influx of storage that might not have taken place without these incentives being present for network nodes. Ultimately artificially fueling incentives runs a tail risk of an unwind in the event that demand does not catch up to the storage activity. Additionally, the aggressive distributions arnings will exert excess selling pressure on the token whenever markets start to run.
2. Weak FIL tokenomics
This could be a personal bias, but I am not a fan of token models with perpetual inflation. Having no cap results in holder dilution and a drag on valuations. Coupled with the severe emissions of rewards taking place at the early stages, this creates a disincentive for individuals. The attempt to introduce new, different vectors of token applications (via FVM) feels like an indirect acknowledgment by the team that without more use cases, the token cannot attain the value its original vision might have been intended to.
🧐 Opportunities (External) (Helpful)
1. Demand for On-chain storage
Regardless of current market conditions, demand for censorship resistance, on-chain storage will inevitably grow. New projects have been coming to market in the Decentralized storage space and have been finding demand almost immediately. As time goes on and users distill into the most prominent/secure/reliable systems, Filecoin’s brand has the potential to capture a large portion (if not the majority) of the market.
2. More Cost Friendly than Web2 Provider
Legacy systems (Web2 storage) have shown a lack in their economies of scale where the costs continually outpace the demand, which might push their audiences to find alternative solutions in Web3. As a rough estimate, using Filecoin’s network for 100 PiBs of storage will cost 5x less than using AWS and >6x less than using Google Cloud. ** The costs will be dropping dramatically with the implementation of the DSA Optimizations by roughly 40%.
😳 Threats (External) (Harmful)
1. Highly Competitive Category
The decentralized storage space is among the few sectors of the digital economy with a massive direct value proposition; turning out to be extremely attractive to competitors. Considering that data storage is no simple feat, the level of technical aptitude in order to get involved is at a rather high threshold, making the caliber of competition extremely high. While it might be easier to fend off the clueless, the competition at the highest ranks are brutal.
2. Not the most Innovative or Affordable
In tune with the competitiveness of this category, other industry players (who shall go unnamed for the sake of preserving this article on Filecoin) are showing better performance capabilities, at better rates, with more balanced token models. Time will tell what the market tends more to, but it is hard to ignore those that provide what you do (potentially better) at lower rates.
Takeaway:
Filecoin sits at the top of the leaderboard for the Decentralized storage category across nearly every possible metric, from market capitalization to brand recognition to node count and team/foundation credibility.
Attention to detail and the depth of domain expertise can be felt just by exploring their website and reading through their documentation (Disclaimer, I read as much as possible, but oh my god, these guys really went hard on drilling in, to address everything!)
The convergence of tech to an EVM-compatible version of itself is interesting to see, and will certainly be something that reflects itself economically on the project.
This is a protocol and product that is suited for building businesses.
Conclusion:
Throughout this bear market, Filecoin has been relatively controlled in terms of its social presence. Certainly, they have been active; However, the kind of communication they have been doing has been very subtle (when compared to many other projects). Their focus on recruiting builders, boosting their infrastructure by courting providers, and developing a tightly knit but well-informed core community has a refreshing, genuine feel to it that I like.
While I have never used the network (to my knowledge, maybe indirectly through another dapp) and do not have a need for such services on a personal level, the application is definitely of immense value to enterprise.
I have tremendous respect for the project and its roots; however, as an individual that is looking to understand how this project can provide maximal benefit to me, I must admit it is very low.
The tokenomics are always an important factor to me. While the model used by FIL is very understandable from the side of their operations, it is definitely not ideal for an investor (of my type).
I will not be interested in acquiring any FIL until the 6-year vesting schedules of over 400,000,000 tokens (Team and Protocol Labs allocations) approach their full unlocks.
** Final note, I would like to append just to acknowledge something. There are so many absurd incentives taking place right now, such as unlimited free storage through Estuary, obscene incentives via FIL+, and incubations of projects that, I believe, are pointless (at best), that there is a slight cognitive dissonance arising after doing enough digging.
If you know something that I don’t or feel as though I might have missed anything worth noting, please do share, I would tremendously appreciate some feedback.
Thank you so much for reading,
I hope this serves you well on your journey.
Live long and prosper 🥂